Acquisition and Disposition of Assets

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Definition

• Assets refer to tangible or intangible items owned by a person or business, have value and can be transferred.
  • Tangible items are such as land, building, equipment, investment, and warrants.
  • Intangible items are such as leasehold right on land or building, concession right, business permit, transfer or forgo the benefits as well as forgoing the claim over people who cause damages to the company. This applies to either case when the benefits are related to the company or subsidiary.
  • The following assets will be excluded:
    1) Current assets used in business operation e.g. raw materials, account receivables, inventory, cash, deposits, etc.
    2) Investment for liquidity managements such as the investment in equity securities and debt securities.

• Acquisition or disposition of assets refers to:
  • A purchase or sale of assets  or
  • An agreement/entering into contract to acquire or sell assets or
  • Acquisition or forgoing the rights to acquire or sell assets  or
  • Receiving the transfer or transferring the claim to possess assets in the long-run or
  • Investing or cancelling investment

Considering whether the transaction is subject to an acquisition or disposition of assets

1. Consider whether the transaction is subject to the above mentioned definition of “assets” and “acquisition or disposition of assets”
2. Calculate the size of transaction as of the day when the board of directors has reached a resolution
3. Proceed to take action according to size and significance of the transactions, for example:
• Not required or required to disclose information to SET
• Must gain approval from the board of directors or the shareholders 
4. If the counterparty is connected person, the procedure should be in line with the connected transactions rule

• Calculate the size of transaction to evaluate its potential effects on the company’s financial positions and operational performance in various aspects
• Four bases of calculation:

1. Calculation based on the value of net tangible assets 
- Calculation formula:

(NTA* of investment in the company x Proportion of assets acquired or disposed) x 100
NTA of the listed company**

2. Calculation based on net operating profits 
- Calculation formula:

(Net operating profits of the investment x Buying or selling ratio) x 100
Net operating profits of the listed company*

* In case the company produces consolidated financial statements, use the net operating profits from consolidated financial statements (data should be extracted from the latest financial statements)

3. Calculation based on total value of consideration paid or received 
- Calculation formula:

Value of transaction paid or received* x 100
Total assets of listed company**

* 1) In case of assets disposal, compare total value of consideration paid or received and its book value. Whichever is higher will be used for the calculation 
   2) In case the consideration is listed securities, compare the market value of securities or NTA. Whichever is higher will be used for the calculation
   3) In case of investment disposal to the extent that a subsidiary or affiliate no longer viable, calculate total value of consideration by incorporating the cash loans, guarantees, and other liabilities as well.

** In case the company produces consolidated financial statements, use total assets from consolidated financial statements (data should be extracted from the latest financial statements)

4. Calculation based on value of equity shares issued for the payment of assets 
- Calculation formula:

Equity shares issued for the payment of assets x 100
Paid-up shares of the company*

* Excluding equity shares issued for the payment of assets

Procedures upon the size of transactions

• After calculating from all different bases, choose the highest value to proceed
• Summary of the process according to the calculated transaction size:

Combination of multiple acquisition or disposition transactions can be made to compare the volume of transactions, if such transactions have been separated to intentionally avoid the rule. The combination includes the following:

• Transactions made during 6 months prior to the day the company agreed to enter into transaction, except for the acquisition or disposition of assets already approved from the shareholders’ meeting.
• The transactions relating to an acquisition of securities in the takeover or merger of business, or resulting from an acquisition of securities in the takeover or merger of business.

• Backdoor Listing is when the company or subsidiary acquires assets of a non-listed company, making transaction of these following features:
1. Transaction size ≥ 100%  or
2. Transfer the controlling power to a non-listed company or to the asset’s owner (including the transfer of power within 12-month period, except for an action to intentionally avoid Backdoor Listing rule which could combine transactions of more than 12 months)  or
3. Existing shareholders of the listed company collectively hold less than 50% of the paid-up capital of the merged entities combined. In other case, the controlling power might be transferred to those of the non-listed company.
• SET may combine the size of transactions made within 12 months into one single transaction.
• In case, the acquisition of asset does not fit into a backdoor listing according to the above mentioned features but the substance of such acquisition is to avoid compliance with this rule, SET may consider the transaction as a backdoor listing.
• Actions to proceed when the company is subject to Backdoor Listing rule
  • Notify the SET
  • File a new listing application to SET in line with the New Listing Rule
  • Seek approval from the shareholder meeting by gaining 3/4 votes from participating and voting shareholders and excluding shareholders who have a conflict of interest in the transaction. The IFA should also express their views toward the transaction.
          In case the company has gained approval at the shareholders’ meeting before getting the result of listing application from SET, the company will have to specify in the invitation letter to shareholders that it is waiting for the result of listing application and has to send the invitation to SET before the shareholders.
• SET may consider the transaction as Backdoor Listing without requiring new listing application if all of the following apply:
  1. The acquired business is similar or support existing business  and
  2. The company does not have any policy to make a significant change in its major business  and
  3. The group of companies gained from acquisition of assets is qualified for listing on SET and
  4. There is no significant change to the board of directors and the controlling power of the company, or the controlling shareholders.

• Cash Company refers to the listed company or subsidiary which has disposed all or nearly all of its assets used for normal business operations, making all or nearly all of its assets are now in cash or short-term securities.
• Actions to proceed when the company is subject to Cash Company rule
1. Notify the SET
2. Seek approval from the shareholders’ meeting by gaining 3/4 votes from participating and voting shareholders and excluding shareholders who have a conflict of interest in the transaction. The IFA should also express their views toward the transaction.
3. Submit a report on financial positions, which has been reviewed by an auditor, to the SET within 30 days from the day assets are disposed. The SET may suspend trading of the company’s securities until the company has reported complete and clear information as required by the SET.
4. The listed company shall take actions to ensure that it is no longer Cash Company within 6 months from the date the SET has received the statement of financial position. While the listed company takes such actions, the SET shall post NP (Notice Pending) and C (Caution)* signs for 6 months or until the listed company can rectify its Cash Company status. If the company cannot cease its status as Cash Company within the specified period, the SET shall proceed in line with Grounds for Possible Delisting and Elimination of the Ground : All or most of listed company’s assets are in the form of cash or short-term securities (Cash Company).
5. Once the company has a qualified business for listing, it can submit a listing application for SET to consider according to the new listing rule.
   *C (Caution) is the sign to warn investors of an event that may affect the listed company’s financial position or performance, thereby trading must be via the cash balance account.

• The company has to notify, via SETLink, about the board’s resolutions on an acquisition or disposition of assets immediately upon making the transaction (normally on the day the board has given an approval), that is within the day the board has made the resolution or by 9.00 am of the following business day at the latest.
• Significant information of the board resolution are:
  1. Date, month, year of the transaction
     
  2. The counterparty and relation with the company
     
  3. Type and description of the transaction
     
  4. Details of assets
     
  5. Total value of consideration, payment method, and other key conditions agreed upon
     
  6. Value of assets acquired or disposed
     
  7. Basis for determining the value of consideration
     
  8. Net profits excluding special items related to asset acquisition or disposal for two years before entering into the transaction if necessary.
     
  9. Benefits that the listed company will gain.
     
  10. Source of fund for buying the assets. In case of loan from the financial institutions, the conditions affecting shareholders’ rights must be specified.
      
  11. Specify a plan on the use of fund received from asset sale
      
  12. In case new securities are issued to pay for the assets, specify the type of securities, amount and price of the shares issued.
      
  13. Other prerequisite conditions for the acquisition or disposition of assets such as gaining approval from SET or the Bank of Thailand.
      
  14. In case the listed company has invested in a company of which major shareholders are connected persons, and that business is related to the listed company’s business, specify the reasons and the need to conduct this transaction. Also, specify the measure to prevent any possible conflict of interests in the future.
      
  15. The views of the board of directors about an agreement to enter into the transaction (in terms of the rationality and benefits to the company, as well as associated risks, and other emphasis matters). In case the transaction needs an approval from shareholders, the board of directors must express their views clearly about whether the shareholders should pass an approval and provide reasons.
  16. Views of an audit committee or of the directors whose views differ from the board of directors in (15), including the case when the director abstained from voting

• IFA must express his/her opinions on the transaction to the company’s board of directors on the following aspects:
  1. The rationality and benefits to the listed company
  2. Fairness of the price and conditions
  3. Reasoning about whether the shareholders should pass an approval of the transaction
  4. Views regarding the adequacy of additional working capital, in case the transaction is subject to the Backdoor Listing rule.
• The company must send the IFA’s opinions along with an invitation to shareholders’ meeting to the SEC and SET to consider about an adequacy of information. The submission can be in either one of these two ways:

1. Sending the documents at least 5 business days before sending them to the shareholders
2. Sending the documents at the same time as sending to the shareholders

• Delivery period
  An invitation must be sent to shareholders at least 14 days before the shareholder’s  meeting date   
• Information to be included in the invitation are the IFA’s opinions and the following documents:
  1. Information disclosed to SET once the company agrees to enter into the transaction
     
  2. Statement regarding the responsibility of the board of directors in producing the information
     
  3. Views of independent professionals e.g. assets appraiser
     
  4. Details of the company’s liabilities such as the debt instruments, loans, and any possible debt obligations in the future
     
  5. Summary of company information e.g. list of executives and major shareholders, business operations and trends of the business, 3-year financial summaries and latest financial statements with MD&A, risk factors, and financial forecasts (if any).
     
  6. Views of the board of directors regarding sufficiency of working capital. In case it is insufficient, specify the source of funds to be used.
     
  7. Legal case or claims with material information
     
  8. Connected transactions
     
  9. Summary of key contracts in the past two years
  10. The company must nominate at least one audit committee member to be a proxy of the shareholders.

• In case of investment or cancellation of investment in a company causing the company can have or end its subsidiary status, the company has to notify about the investment or cancellation of investment, in line with the Information Disclosure Rule for the case when investment or cancellation of investment.